Unencumbered Funds is the franchisee’s own cash available in liquid form and should not be obtained from a bond or other loan which would increase the debt level of the franchisee in his/her personal capacity. Franchisors and financial institutions require the franchisee to invest in the business to circumvent the risk of over-gearing the business by having to make large monthly repayments which a new business is unlikely to be able to afford.
The franchisee is normally required to invest a minimum of 50% of the total investment and may finance the balance. This also shows the franchisor and the financial institutions that the franchisee has intent and is willing to take some risk. The franchisee must have the collateral to borrow the funds against and prove affordability from his/her personal balance sheet.
The amount of unencumbered funds that a franchisee has at his/her disposal, will largely dictate the type of franchise that they can afford.
SA Franchise Brands